hospital is that it does not any longer believe in the promises that it made when the founders set up the hospital. The second problem is due to the large differences that exist among the members of the Board and as a result the CEO is not finding it possible to control these differences. The third problem can be viewed as an extension of the same lack of control by the CEO over the lower levels employees of the organization. In normal circumstances these employees are expected to report to the CEO, but here the employees could be seen acting according to their interests. In continuation of this is the lack of setting up rules under which these employees should be operating.

This is also the responsibility of the CEO, but it is clear that this has not been done. This leads back to the third problem that if these rules had been fixed, then it would have been much easier to control the lack of discipline among the hospital staff. This is also affecting the hospital both in terms of finance as well as physical operations of the hospital. This continues on to the fifth problem and this relates to not being able to understand the financial implications of running the hospital. The implications of medical insurance and the costs of running the hospital is leading to a situation whereby the management loose all control of running the hospital. These five situations can be clearly summed up in a single statement and that is the lack management skills for running the hospital successfully.

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The appropriate solutions

The first of the problems of not living up to the promises made by the founders as mentioned on the backs of visiting cards can be resolved by living as per those promises. The promise is stated as “With the foundation and commitment of our spiritual heritage and values, our mission is to promote the health and well-being of the people in the communities we serve through a comprehensive continuum of services provided in collaboration with the partners who share the same vision and values.” (Case Study provided by client) The mission of the hospital here is clearly one of providing service to the community for the ‘well being of the people’ without caring for the costs incurred. The help is also to be given ‘in collaboration with partners who have the same vision and values’.

If this is the aim of the hospital then all individuals who work with the hospital or for the hospital have to follow the same principles and anybody with a different thinking should quit. It is also the job of the CEO to decide what these objectives translate into, or how they can be carried forward. This may lead to a stage where some of the other persons may be in disagreement with him so far as the interpretation of these ideals are, but as the CEO, it is his job to follow up on these ideals and for this he has to depend on his own understanding. When conflicts arise, he has to either compel the other person who has a different understanding to quit, or quit himself. This is the method for solving the differences among the board of directors, or the staff, for dealing with the difficulties in physical operation, and finally for a successful management of the hospital.

Rationale for the proposed solutions

The problems for the hospital are a lack of direction or flow. That is happening as no individual in the organization knows where to go. To rectify this, one main area is for the leader to decide where he wants to go. This is provided by the stated mission of the hospital. This has already been discussed. At the same time, all the lack of direction has been reflected in certain physical problems, and the reflection is mainly in the areas of finance for the hospital. This has also been discussed in detail in the case. In order to run the hospital effectively, it is important that the financial problems of the hospital are solved, as without this, the total and apparent problems of the hospital will not be solved. (Kowalczyk, 2000)

To understand the financial difficulties in running a hospital, let us understand that there is no hospital without financial difficulties in USA at the present point. For the purpose of supporting our decision on this matter, let us look at the study by the Lewin Group of Massachusetts. One of the biggest problems that they had was to convince the financing authorities that they were not wasting the money that was being given to them by the taxpayers. This is one of the main reasons why hospitals find it difficult to get money even when they require the funds for their operations. This is the principal reason why the Lewin Group conducted the study and one of the interesting points that they found out was that the costs of running a hospital in Massachusetts was 4.3 higher than running a hospital at any other place.

The higher costs were not only for that hospital, but also for other hospitals like community hospitals, inpatient stays and outpatient visits. The entire objective of this study was to remove the blame that was being given to this hospital for high costs. Most of the hospitals were going through losses for 13 straight quarters and this sort of a high loss was felt by some to be not sustainable. The problems of the hospital were further accentuated by the plans of the governor. The requirement of the hospitals was only for $100 million and this would have been easy for the legislators to provide as the state was expected to have a surplus in the budget of a figure between $500 million to $700 million. Yet the legislators had a different objective due to the approaching elections and they wanted to give a tax cut so that they could get re-elected. (Kowalczyk, 2000)

A similar situation also existed in Pennsylvania wherein the state was being affected by increasing costs and this lead to a situation which affected the provision of health care to its citizens. The financial difficulties make it problematic for the patients to understand as to what is going to happen in the emergency rooms of the hospitals when there is such a financial crisis. Yet in such cases, the doctors of Pennsylvania were capable of dealing with financial difficulties. Their attitude sounds like “our mission is to promote the health and well-being of the people in the communities we serve.” (Baldwin, 2001) The reason for this confidence is that insurance companies and others concerned with the financial needs of the people requiring medical care will end up paying for visits to the hospital on emergency basis even though the signs that are being exhibited by the patient do not seem to be of an alarming nature. However these visits quite often end up preventing several diseases of the people like heart problems when provided with treatment in the initial stages. (Baldwin, 2001)

The financial difficulties that the hospital is facing are not unique and it can be seen that financial problems exist even in several international situations. One such similar example could be found in Victoria where many hospitals are facing deficit problems. The attempts at controlling the costs of hospitals has resulted in increasing the waiting period for a bed to 12 hours and this trend has been increasing for a period from June 2003 to March, 2005. This may seem to be a high figure, yet is not so as this figure of 12 hours is less than compared to the situation in the last quarter. Thus one can conclude that the situation is improving. In another hospital, namely the Alfred Hospital the projected financial deficits are high as $10 million. Other similar hospitals like Southern Health had a projected deficit of a figure between $10 million to $14 million and Goulburn Health had a projection of $2.4 million. (Dubecki, 2003)

Thus the financial problems that the CEO is worried about are really not totally unexpected and so serious. In any case, it has been made clear by the founders through their statement “we serve through a comprehensive continuum of services.” (Lesser; Gaylin; Andersen; Brown, 1999) It is quite possible that the CEO is a doctor and does not understand much about finance, and that is the reason why he may be so worried. In that case, he can let him get another expert who can arrange the required funds and this can be organized from outside organizations that have funds. The aim of the hospital is to serve people and not to make profits. This is the confusion that many CEOs have about their task. The task here is to provide service and it is not his job to worry about costs. It is quite clear that he is not able to solve the financial problems and so he should get somebody who can. At the same time, he should have financial rules in the hospital, and it is only the financial chief who should be permitted to allow benefits of paying later and other advantages. If every employee starts doing it, how can he expect the expert to handle all the problems without realizing how big the problem is going to become?

The other point is that when employees see that finances are relatively easier to get, they would tend to become a little generous on their own, and that would only end up increasing difficulties for the person who is handling the finance. There are many strategies for easing up on financial difficulties and one of the possible strategies may also be to tie up with financially stronger hospitals. In one such case, there has been a tie up of Network Beth Israel with St. Barnabas system. There are also some systems like NJKidCare which is an insurance system for organizing help for uninsured patients. Some other systems have also come in like the compulsory Medicare managed care, and this system has been growing fast from the time it was started in 1995. The effect of this system has been very good regarding the beneficiaries covered by the welfare programs of the states and it covers almost 95% of those individuals. (Lesser; Gaylin; Andersen; Brown, 1999)

It should also be clear that the payment problems are also expected at the maximum level from these people. The hospitals in New York also fare poorly in terms of operating performance and financial conditions. The studies on the hospitals are often completed by the Hospital Association of New York. They get the required information from the database that it has. This sort of studies are also done in other states but on studying the data that is given by this group would make people believe that the hospitals in New York are capable of going through the worst types of financial problems. According to studies made by them, there were 28 hospitals in the state that all had negative fund balances, during the entire period from 1979 to 1988. Yet these hospitals managed to survive without filing for bankruptcy. It is also not that the negative balances of these hospitals were low — some of these hospitals reached negative balances of over $20 million at some point during the period. The study covered a period of ten years and during the entire period, it was seen that as many as six of these hospitals had a negative balance throughout the period.

Part of the reason for the problems of these hospitals was due to some laws that the states had regarding the annual funding of depreciation assets. This is not enforced in many cases when the financial situation of the hospital was poor. (Donoghue, 1990) These laws are more concerned with auditing than accounting, but made a difference of life and death for some of these hospitals. Another problem came due to the third party reimbursements that are made to the hospitals and the control of these by the state regulators. This was an important source of fund for these hospitals during this period of ten years. In spite of all the troubles, it was seen that some changes were made in the inpatient reimbursement system during 1983 and 1986 that helped the hospitals. These changes improved their operating and final margins. The biggest problems of the hospitals came from the difficulties that they had with health insurance companies. They are responsible for a large amount of the payments that a hospital gets, but these organizations are also very much interested in reducing these payments. One of the systems that they employ is changing the payment from inpatient surgery to ambulatory surgery.

Another difficulty that the hospitals face is in the area of payment of wages in certain sectors as there is a continuous shortage of skilled persons in those areas. The concerned areas are nurses, therapists, and technicians. It would not be correct to think that the situation will improve later, as the shortage for these skills are projected to continue. At the same time, the situation of any hospital in terms of market share is a proposition which is difficult to judge. This position arises as some hospitals have a monopoly on the market for hospital services in their area, and at the same time, there are some communities which do not seem to provide enough patients for hospitals. The situation of any particular hospital can be judged only on the actual situation in that locality. These do not seem to be making a difference in the case that we are working on, though there is a mention that there are some signs of the number of patients dropping down. For that a total analysis would be required. The present aim should be not to concentrate on the financial difficulties of the hospital, but to concentrate on the service aspect for which the hospital had been started.


Baldwin, Fred. (May/June, 2001) “Emergency Room Drama: Be Prepared before a Crisis

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Donoghue, Richard J. (December, 1990) “Evaluation of hospitals as entities able to continue as

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Kowalczyk, Liz. (6 April, 2000) “Hospitals ask state for $100 million more” Retrieved from Accessed on 12 July, 2005

Lesser, Cara S; Gaylin, Daniel S; Andersen, Amy M; Brown, Lawrence D. (Spring, 1999)

“Consolidation Continues, Financial Pressures Mount” Community Report. No: 12. Retrieved from / Accessed on 12 July, 2005